SA’s approach to energy generation is as out of sync with evolving global norms as the previous regime’s race-based voting criteria were. Localisation policies preclude our integration into the global economy, which is required to increase job creation while boosting our capacity to repay the enormous debt load necessary to transition towards cleaner energy sources.
Using metrics such as trend growth, education outcomes and employment opportunities, our policymakers rate among the world’s worst. The reputations of international climate advocacy groups have also been battered. Rallying against racism or global warming is commendable, but such championing must fold into workable transition paths that don’t intensify poverty and unemployment.
Exports being dominated by commodities leads to a stronger, more volatile currency, thus weakening prospects for the value-added exporting necessary to tame our unemployment crisis. As commodity exports can fund our imports, debt service and the patronage that encourages isolationist policies, our policymakers have become seemingly indifferent towards anaemic growth and swelling unemployment.
This “resource curse” has always been detrimental for non-politically favoured South Africans. Now it is also a major problem for those who see SA as a top candidate for reducing emissions.
Long ago, a professor of moral philosophy wrote The Wealth of Nations, which deciphered why possessing huge volumes of precious metals won’t make a country wealthy. He further explained why creating wealth requires increasing worker productivity. Specialisation of labour increases productivity immensely.
Adam Smith’s famous example about a pin factory encouraged the popular perception that industrialisation is intrinsic to productivity gains. His deeper insights from a quarter millennium ago are, first, that gains from specialisation spawn ever greater efficiencies, and second, that such gains are proportional to the size of the market.
It is the second insight that explains so much of the rise of Asia — and why SA and this region have lagged far behind. As technological advances reduced communication and transport costs in recent decades, productivity gains have soared, adding value to goods and services within global supply chains.
As specialisation, globalisation and rising purchasing power have been mutually reinforcing, the global economy is more than 100 times larger than it was two centuries ago. Conversely, countries reliant on commodity exports are prone to having patronage-captured governments and few workers adding value to exports. Such effects help explain why the vast majority of the world’s extreme poverty is concentrated in Sub-Saharan Africa.
President Cyril Ramaphosa is not wrong when he says poor nations can’t afford to transition to cleaner energy sources. Yet SA’s extreme poverty and unemployment are entrenched by localisation policies, which reflect his party’s need to feed its enormous patronage web.
Sharply reducing corruption and cadre deployment can’t produce adequate productivity gains if we continue to reject Smith’s now well-proven insights about access to a large market. SA can only afford to finance a substantial “just energy transition” if the economy is fundamentally reformed to increase productivity via far greater global integration.
To meaningfully mitigate SA’s youth unemployment crisis the ANC’s localisation policies must go. As the party’s grip on the Union Buildings is expected to survive the 2024 elections despite it being unmoved by most of SA’s born-free adults facing lifelong marginalisation, international green energy advocates must not presume the ANC will sincerely take up their ultra-expensive cause.
Green energy advocates have caused considerable energy poverty by seeking to restrict the supply of the worst emission sources without having secured adequate supplies of cleaner alternatives. The backlash will have motivated them to adopt a broader solution perspective. Engaging with the ANC will provoke further reality checks as the party’s patronage appetite is a central feature of our political landscape.
To minimise the cost while maximising the effectiveness of SA’s energy transition, external funders should identify opportunities where interests align. As central banks own much gold they, along with gold mine shareholders and environmentalists, should favour achieving high gold prices through restricting supply.
Smith was able to convince his country’s policymakers that increasing supplies of gold and silver stoked inflation, not productivity. Whereas closing coal mines can favour greener alternatives, closing gold mines reduces energy consumption. One alternative store of value, a popular blockchain-enabled crypto currency, recently reduced its electricity consumption by 99%.
Non-interest bearing bonds maturing in 2050 could be issued to purchase some of the world’s most energy-intensive gold mines. Those mines could then be closed and the workers and local communities fairly compensated. A consortium of major central banks could buy the bonds, with the losses in interest income being offset by the increased value of their gold holdings. The politics and economics would probably lead to the bonds being cancelled as 2050 neared. Such programmes should be compared to poor nations being further impoverished trying to fund “just energy transitions”.
If international clean energy advocates want to pressure African countries to reduce their dependence on dirty energy they must better appreciate why most of the world’s extreme poverty is clustered among African commodity-exporting nations. Global warming and having hundreds of millions of people entrenched in dire poverty are both top priorities. Treating them as competing challenges makes solutions more elusive.
We aren’t going to solve SA’s youth unemployment crisis or get to zero emissions with a business-as-usual mindset. World leaders and climate change advocates must appreciate the central importance of weaning African governments off exploiting commodity exporting and indulging the localisation biases that favour their patronage networks.
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